Major flaw in laws prohibiting resale of NAMA properties to developers revealed

Major flaw in laws prohibiting resale of NAMA properties to developers revealed
Comptroller and Auditor General Seamus McCarthy

A major flaw in the laws prohibiting the resale of properties taken over by NAMA to the developers behind them has emerged.

Members of the Dail’s Public Accounts Committee (PAC) have said under privilege this morning that they are certain that developers are back in control of properties having bought them back at a major discount, because of the lacuna in the NAMA Act.

At the time of its launch, the then Finance Minister Brian Lenihan stressed Section 172 of the NAMA act, in assuring the public that developers could not buy back their loans at a major discount.

However, at a meeting of the PAC on Thursday morning, the Comptroller and Auditor General Seamus McCarthy set out the fact that the act referred to the sale of properties but not the loans associated with them.

Mr McCarthy gave NAMA credit for seeking to apply the spirit of the act in relation to loans but said it had no statutory power to enforce it.

The committee heard that the vast majority of NAMA’s work related to the sale of loans, meaning the ban contained in Section 172 was “virtually meaningless”.

Social Democrats TD Catherine Murphy said she was sure developers were back in control of their properties having secured them at a massive discount.

The PAC in a report had criticised NAMA's lack of systematic and routine verification of Section 172 declarations which it said was unacceptable.

The Committee recommended that NAMA puts in place a system to verify Section 172 declarations it receives for the remainder of its operation.

The Minister for Finance Paschal Donohoe’s department rejected the PAC’s recommendation.

According to correspondence, seen by the Irish Examiner, the Minster was informed by NAMA that it has considered the PAC recommendation and concluded that, if adopted, it would give rise to a number of serious practical difficulties which could have an adverse commercial impact on its sales activities.

Major flaw in laws prohibiting resale of NAMA properties to developers revealed

NAMA said “proving purchaser compliance with Section 172(3) would necessitate undertaking a comprehensive asset search for every purchaser of a NAMA-secured asset. This would be an expensive and time-consuming process with a requirement to retain external service providers, potentially in multiple jurisdictions”.

“In some jurisdictions, there is no certainty that the identity of the Ultimate Beneficiary Owner (UBO) could be established. The UBO in all likelihood would never have had any connection to NAMA,” it said.

Any resulting delay in the completion of ongoing transactions by pursuing step 1 would potentially result in a renegotiation of price by potential purchasers or, in sales falling through, NAMA said.

It should be noted that the Section 172 policy which has been adopted by NAMA Board - and the associated requirement to obtain confirmations - is broader in scope than the wording of Section 172(3) of the NAMA Act. NAMA cannot legally prevent a sale from proceeding if the buyer is not otherwise prevented from acquiring the asset by Section 172(3) of the NAMA Act 2009, the bad bank said.

It also said a process which would involve a comprehensive verification of the purchaser confirmations would appear to imply that NAMA does not regard the purchasers' written confirmations as having much standing and that, instead, it operates on the presumption that many purchasers of NAMA-secured assets are wilfully breaking the law.

PAC Chairman Sean Fleming rejected any suggestion that NAMA was seeking to willfully break the law.

NAMA also said it considers that these considerations could seriously impede its ability to achieve the best possible financial return for the State.

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